Messagemate Aust P/L v National Credit Insurance (Brokers) P/L & Ors No. Scciv-99-565

MESSAGEMATE AUST P/L v NATIONAL CREDIT INSURANCE (BROKERS) P/L & ORS
[2002] SASC 327
WILLIAMS J
INDEX Par Nos

1      The nature of the action   1
2      The FAI Trade Credit Policy  13
(a)     The policy documents  13
                  (b)    The principal terms of the policy  16
(c)     The proposal for insurance  19

3      The Distribution Agreement  20
4      The Nature of the Equipment  24
5      The bad debts  29
6      The Claim and Response  37
7      The principles of law as to construction of
insurance contracts  40

8      The construction of the policy of insurance  42
(i) Analysis of FAI’s arguments  42
(ii) The policy applied to a commercial environment       45

9      The policies offered by other insurers  52
10     NCI’s protest  63
11     The evidence  74
12     The broker’s duty of care  83
13     Misrepresentation and misleading and deceptive conduct       94
                  (a)     The plaintiff’s claim against FAI  94
                  (b)    The plaintiff’s claim against NCI & Carlier              96
(c)     The defendant’s third party claim  101

14     Loss of use of money  102
15 Insurance Contracts Act - s54 114
16     Conclusion  119
1      The nature of the action

The plaintiff Messagemate has claimed indemnity under a policy of Trade Credit Insurance issued by FAI to Messagemate with respect to bad debts arising from the sale and delivery of goods upon approved trading terms to its principal customer APT Logicom Pty Ltd (now in liquidation). The plaintiff by its proposal for insurance disclosed to FAI (as was the fact) that its terms of trading gave 30 days credit to the customer but reserved to the plaintiff property in the goods until payment. FAI now contends that the cover provided by its policy only extends to circumstances in which “legal title to the goods” has been transferred to the purchaser and does not extend to circumstances in which by the terms of trading there has been reservation of title (ROT) (also referred to as retention of title) to the vendor pending payment for the goods after delivery. The reservation (or retention) of title and other trading terms are contained in a distribution agreement between Messagemate and Logicom.
The reservation in this instance is expressed in the simple form approved in Clough Mill v Martin [1985] 1 WLR 111 (as opposed to a more sophisticated form as used for example in Aluminium Industrie Vaasen vRomalpa Aluminium [1976] 1 WLR 676) (the Romalpa case). Authority for the seller’s reservation of a right to dispose of goods is contained in s 19(1) of the Sale of Goods Act (1895) SA. By its agreed trading terms the seller (Messagemate) retains ownership in the goods delivered as against the buyer (Logicom) until the full purchase price has been paid.
The plaintiff’s action against FAI is for breach of the contract of indemnity by refusing to meet a claim under the policy upon the default of APT Logicom; alternatively if FAI’s interpretation of the policy be correct, the plaintiff alleges that FAI tendered a policy of insurance upon the plaintiff’s proposal which was substantially worthless and which never put FAI at risk in respect of the plaintiff’s disclosed manner of trading; upon this alternative claim the plaintiff alleges that FAI’s conduct was deceptive and misleading in breach of various provisions of Part 5 of the Trade Practices Act 1974 and was also in breach of the Fair Trading Act 1987 and also gave rise to misrepresentations. The plaintiff also pleads as against FAI the application of s 13 and 14(1) of the Insurance Contracts Act 1984 (imposing an obligation upon the insurer to deal in the “utmost good faith”); the plaintiff also pleads the effect of s 37 of that Act which prevents an insurer from relying on an unusual provision in a contract of insurance without prior notification to the insured of the effect of the provision; the plaintiff contends that the interpretation of the policy put forward by FAI is absurd.
The policy of insurance was brokered by the first defendant NCI (of whom the second defendant Carlier was the State Manager). Mr Carlier placed the insurance. NCI was a specialist broker in the field of trade credit insurance. The plaintiff claims that its directors Messrs Basheer and Toohey relied upon NCI and its Manager for expert advice in arranging this insurance and that the broker breached a duty of care in failing to identify a supposed loophole (or limitation) in the policy of insurance and in failing to properly advise thereon; alternatively the plaintiff alleges that NCI and Mr Carlier engaged in misleading and deceptive conduct in explaining the effect of the policy. Even if FAI is held liable under the policy the plaintiff claims that uncertainties which FAI has been able to exploit in this action as to the meaning of the policy should have been recognised by NCI and been the subject of advice to Messagemate. As FAI is now insolvent, the plaintiff contends that in any event by reason of an unsatisfactory insurance policy being provided to the plaintiff it lost an opportunity to obtain an early judgment against a solvent insurer and to obtain satisfaction thereon. The plaintiff’s claim against NCI is expressed as being founded upon a breach of contract, a breach of a duty of care, misrepresentation and a breach of the Trade Practices Act or the Fair Trading Act.
NCI contends it has properly discharged its function as a broker and disputes FAI’s interpretation of the policy; it claims that FAI’s interpretation of the policy is a significant departure from its accustomed approach to the operation of the policy. Seeking an indemnity from any liability to the plaintiff NCI and Carlier make third party claims against FAI alleging misleading and deceptive conduct by FAI in causing NCI and Mr Carlier to assume that the standard FAI Trade Credit Policy would respond to circumstances in which the insured’s trading terms with its debtor included a ROT clause. (NCI as broker had previously dealt with FAI extensively upon the basis of the standard policy and that earlier experience was satisfactory; about 80 per cent of NCI’s clients who were engaged in manufacturing used some form of ROT clause).
Messagemate’s claim against Mr Carlier is to be distinguished from the plaintiff’s claim against NCI although both claims arise out of common facts. Mr Carlier had no retainer from the plaintiff and cannot be liable in contract; Mr Carlier’s position under the Trade Practices Act and the Fair Trading Act must be assessed bearing in mind his supposed role as being “involved” in the alleged contravention (see Yorke v Lucas (1985) 158 CLR 661 at 670). The alleged liability of NCI and its Manager is not co-extensive; even in tort it is arguable that differences in responsibility should be recognised. However, it is claimed by the plaintiff that NCI should be vicariously responsible for Mr Carlier’s acts or omissions.
There is only a small area of dispute as to the facts. I have summarised in part 11 of these reasons the general circumstances in which the insurance was effected and a claim thereunder made and rejected. The dispute substantially centres around the meaning to be given to the insurance policy when considered in conjunction with the terms of trading in Messagemate’s distribution agreement.
In September 1998 the plaintiff established a new business to manufacture and sell an automated communications system for connection to existing telephone installations. Messagemate established a system for the distribution of its product under which APT Logicom of North Melbourne was granted the exclusive right to market and distribute the equipment in all States of Australia (other than South Australia) and New Zealand and a non exclusive right with respect to South Australia in accordance with a distributorship agreement dated 13 August 1998 which regulated the trading terms between the two companies. Under the terms of this agreement, risk of loss or damage to equipment consigned to Logicom passed to that company upon delivery but the standard terms and conditions of supply provided that Logicom should have 30 days credit. (In some circumstances the credit extends to 45 days - see cl 9 of Distribution agreement - but nothing turns on this point). The agreement required Logicom to purchase 250 units per month upon credit and provided for delivery of the goods to be made into a secure area of the plaintiff’s premises at Charles Street Norwood which was set aside for Logicom’s use.
The standard terms of trading included an ROT clause:
“The Property in the Equipment specified in the order shall not pass to Logicom until full payment has been made by Logicom.”
The policy of insurance issued by FAI provided an indemnity to the plaintiff in respect of the aggregate invoice value of goods sold and delivered by the insured during the policy period. “Delivered” in the policy means”
“…the time during the “Policy Period” at which goods pass from the “Insured” into the physical control of the “Insured Buyer”, and legal title to the goods has transferred from the “Insured” to the “Insured Buyer.”
FAI contends that in case of goods sold on the abovementioned terms “legal title” does not pass until payment even although delivery has been made. (There were other points raised as to the meaning and application of the policy).
The third defendant FAI is now in liquidation but on 14 August 2001 a Master made an order “nunc pro tunc to 14 March 2001 that the plaintiff and the first and second defendants have leave to proceed against the third defendant on the condition that any judgment obtained by them or any of them be stayed until further order of the court.”
2 The FAI Trade Credit Policy
(a) The policy documents
The policy of insurance No 5041578540 (Exhibit P13) issued by FAI to Messagemate comprises a standard form of policy which incorporates a schedule (tailored to meet the exigencies) and an endorsement which is expressed to vary the terms of the standard policy and is attached thereto. The endorsement refers to a Credit Procedures Manual which accompanies the policy.
The policy is dated 3 December 1998 and the policy period is expressed to be 1 November 1998 (4pm) to 1 November 1999. The policy schedule describes Messagemate’s Trade as “Distribution of Telecommunications Products” in Adelaide and New Zealand. NCI (Brokers) Pty Ltd is named as the Broker; the minimum premium is $25,000 based upon a turnover of $5 million; the premium rate is 0.5 per cent (payable annually) and the maximum sum insured is $750,000. The Insured percentage (of loss) is fixed at 85 per cent with an excess of $5000.
The policy is written against the background of a system of credit control by the insured in respect of its debtors in accordance with the credit procedures manual. The permitted limits of the cover were temporarily extended by an endorsement dated 4 December 1998 from $400,000 to $750,000. This extension (and the original permitted limit of $400,000) appear in Exhibit P14.
(b) The principal terms of the FAI policy
I have had regard to the whole contents of the policy documents but the following extracts from the policy of insurance (including its schedule of endorsements) are of particular importance.
“INDEMNITY AGREEMENT
The “Insured” has, by a written proposal, applied to the “Company” for Insurance cover as described in the Policy Schedule, which cover the “Company” has agreed to give, subject to all definitions and conditions contained being met.
The “Insured” then must make payment of the premium (and other charges) specified in the Policy Schedule and subject to the terms and conditions of the policy being met the “Company” agrees to indemnify the “Insured” for the direct loss arising from the non-payment of the “Insured Debt” as a result of the “Insolvency” or “Protracted Default” of an “Insured Buyer”. This however must take into consideration the “Maximum Sum Insured”, “Excess and/or “Aggregate First Loss”, and the “Insured Percentage” as so defined under the policy.
…
DEFINITIONS
“Delivered” means the time during the “Policy Period” at which goods pass from the “Insured” into the physical control of the “Insured Buyer”, and legal title to the goods has transferred from the “Insured” to the “Insured Buyer”.
“Financial Difficulty” means at any time any of the following:
(a)The “Insured” has knowledge or other reason to believe that the “Insured Buyer” cannot pay its debts as and when they fall due for payment, or cannot honour its contractual obligations.
(b)A bill of exchange in respect of any indebtedness of an “Insured Buyer” that has been dishonoured by the bank, or the “Insured Buyer” has requested the “Insured” to extend the bill of exchange to another due date.
(c)A cheque in respect of any indebtedness of an “Insured Buyer” has been dishonoured or requested to be presented again by the bank (irrespective of subsequent payment)
(d)The “Insured Buyer” enters “Insolvency”.
(e)Any part of the “Insured Debt” owing to the “Insured” is outstanding in excess of the “Maximum Extension Period”.
“Insolvency” means that any of the following steps or an equivalent step under Australian Law has occurred against an “Insured Buyer”.
(a)A receiver or receiver and manager, or an agent for a mortgagee in possession has been appointed over all of the assets and undertakings of the “Insured Buyer”.
(b)An effective resolution has been passed for the voluntary winding up or liquidation of the “Insured Buyer”.
(c)A composition, deed of assignment or deed of arrangement under Part X of the Bankruptcy Act has been entered into by the “Insured Buyer” with its creditors.
(d)A legally binding compromise, composition, scheme of arrangement, or deed of company arrangement has been approved between the “Insured Buyer” and its creditors.
(e)A sequestration order has been made by a court against the estate of the “Insured Buyer”.
(f)The court orders the winding up or liquidation of the “Insured Buyer”.
“Insurable Turnover” means the aggregate invoice value of goods sold and delivered by the “Insured” during the “Policy Period” to “Insured Buyers” excluding cash sales where payment is received on or before delivery of the goods.
“Insured Buyer” is any person or legal entity carrying on business with the “Insured” in any of the “Approved Countries” under a “Permitted Limit” or “Limit of Discretion”. This however shall exclude:
(a)     Government Departments,
(b)     Public Authorities,
(c)     Nationalised Undertakings,
(d)     Associated and/or Subsidiary Companies of the “Insured”.
(e)     “Permitted Limits” or “Limits of Discretion” where the limit is Nil.
“Insured Debt” is an unpaid amount of debt arising from “Insurable Turnover” during the “Policy Period” lawfully owed to the “Insured” by the “Insured Buyer” under the “Maximum Terms of Payment” and “Description of Trade” specified in the Policy Schedule. The “Insured Debt” in all cases cannot be greater than the “Permitted Limit” of the “Limit of Discretion” whichever is applicable in the circumstance.
“Protracted Default” means the non-payment of an “Insured Debt” within the “Protracted Default” Period specified in the Policy Schedule commencing on the original due date for payment or the postponed due date for payment under the applicable contract for the sale of goods for which a judgement debt has been obtained. The “Protracted Default” Period shall not commence whilst a dispute exists of any nature between the “Insured” and the “Insured Buyer” over the “Insured Debt”, or if for any reason the “Insured Buyer” under any law or regulations having the force of law in the country of the “Insured Buyer”, is entitled or obligated to refuse payment of an “Insured Debt”.
“Salvage” shall be any monies (including dividends paid/or payable out of the insolvent estate of the “Insured Buyer”) securities, indemnities, rights of action, counter claim/set off, or any other asset or advantage held, received by, or due to the “Insured” or otherwise available for the purpose of reducing the total indebtedness of the “Insured Buyer” to the “Insured”.
CONDITIONS
1      Precedent to Liability
A condition precedent to the liability of the “Company” is the compliance with each of the terms and conditions of the policy by the “Insured”.
4Credit Control
(a)    The “Insured” shall not vary its standard credit control procedures during the period of insurance in respect of any “Insured Buyer” without the written consent of the “Company”.
(b)    The “Insured” must submit to the “Company” a monthly list of all overdue “Insured Buyers” with debts owing greater than the “Excess” if the “Insured Debt” of the “Insured Buyer” exceeds the “Maximum Extension Period”.
(c)    The “Insured” shall inform the “Company” immediately on becoming aware of any fact or unfavourable information relating to the “Financial Difficulty” and solvency of any “Insured Buyer”. The “Insured” must continue to notify the “Company” and take instructions from the “Company” until the “Insured Debt” is paid in full or until a claim is lodged against the “Company”.
(d)    The “Insured” must not agree to any extension of the due date for payment without the written consent of the “Company”. Any changes approved by the “Company” to the due date for payment shall be endorsed to the policy and may never exceed the “Maximum Extension Period”.
8Claims
(a)    The “Insured” shall promptly lodge a claim form with the “Company” no later than six months after the date of “Insolvency” or “Protracted Default” of an “Insured Buyer”.
(b)    Provided all policy terms and conditions have been met the “Company” will calculate the claim taking into account the “Salvage”, “Excess”, the “Insured Percentage” and any applicable “Aggregate First Loss”.
(c)    Upon receipt of the appropriate confirmation that the “Insured Debt” has been admitted to rank for dividend against the insolvent estate of the “Insured Buyer” the “Company” will, subject to indemnity being confirmed, agree to pay the claim in 30 days.
(d)    In the case of “Protracted Default” as soon as the “Company” is provided with evidence of a judgement debt then the “Company” will, subject to indemnity being confirmed, agree to pay the claim in 30 days.
9“Salvage”
Any “Salvage” obtained by the “Insured” or the “Company” in respect of the indebtedness of the “Insured Buyer” shall be divided between the “Company” and the “Insured” in the following way.
(a)    The “Company” shall be entitled to such proportion thereof as the applicable “Insured Debt” bears to the total indebtedness of the “Insured Buyer” at the date of “Insolvency” or at the date it is deemed that the “Insured” has defaulted under condition 4 of the policy, whichever may be the earlier. This calculation of salvage will always be subject to the Insured Percentage” for the “Insured Debt” and any “Excess” that the “Insured” must retain for its own account.
(b)    All “Salvage” collected by the “Insured” must be remitted directly to the “Company” within 14 days of receipt of funds.
EXCLUSIONS
The “Company” shall not be liable for:
(a)Sales tax, retention monies, interest charges, consequential damages, penalties, government charges and taxes.
(b)Any form of Pay When Paid contracts.
(c)Further deliveries made after the “Insured’s” knowledge of “Financial Difficulty” as described in Condition 4(c) of the policy unless authorised in writing by the “Company”.
(d)“Insured Debts” that remain unpaid due to industrial disputes.
(e)“Insured Debts” that arise from the consequences of war in any form including civil war, revolution, rebellion, insurrection or military or usurped power.
(f)“Insured Debts” directly or indirectly caused by atomic energy risks being nuclear reaction or nuclear radiation or radioactive contamination.”

The insurance cover (as abovementioned in the indemnity agreement clause) is expressed to be “as described in the Policy Schedule” which in turn contains an endorsement:
“Retention of Title Clause
With reference to the policy definition of “Delivered”, it is agreed that the title to the goods delivered may pass to the “Insured Buyer” after the expiration of the “Policy Period” subject always to Condition 4 and provided that the “Insured” takes reasonable steps at all times to preserve its title.”
(Condition 4 dealing with “Credit Control” has already been quoted).
The policy schedule endorsement also includes a clause expressed as follows:
“Work Done/Services Rendered Clause
Work done or services rendered by the “Insured” to an “Insured Buyer” as a result of the delivery of goods, or services rendered, by the “Insured” to the “Insured Buyer” will be covered under the policy conditional upon the work done and services rendered directly relating to the description of trade as specified in the Policy Schedule. All work done and services rendered must be invoiced immediately after the work or services have been completed. In the event of “Insolvency” all work done or services rendered not yet invoiced must be declared to the “Company” in accordance with Condition 2 of the policy.
Upon termination of the policy all amounts of work done and services rendered not yet invoiced must be included in the final declaration of “Insurable Turnover” to the “Company”. The liability of the “Company” will cease 30 days after the termination of the policy for all work done and services rendered not yet invoiced.”
(c) The proposal for insurance
The policy refers to a “written proposal” by the insured which the insured “warrants and represents to be true.” The proposal in this instance is dated 10 September 1998 and signed by Mr Dennis Basheer on behalf of Messagemate; it discloses its largest customer as being APT Logicom Pty Ltd and discloses the terms of trading as being 30 days from end of month of delivery. A question on the proposal form under the heading “Terms of Payment” enquires as to “Retention of Title” to which an answer has been given by a tick in the box marked “Yes”. Likewise answer given on the form disclosed that the plaintiff did not propose any consignment stock trading nor did it propose the forward dating of invoices. The proposal discloses that trading is due to commence on 1 November 1998, the trade being described as “Distribution of Telecommunications Products”.
3 The Distribution Agreement
An agreement dated 13 August 1998 (Exhibit P4) called a “Distribution Agreement” between Messagemate & APT Logicom contains the basis of their trading.
The agreement (which is for an initial term of 1 year subject to an extension) recites the plaintiff’s right (under licence) to use the trademark “Messagemate” and its exclusive right of manufacture and market the relevant equipment. The agreement recites the fact of Logicom as being in the business of marketing and distributing Public Access Business Exchange (PABX) and Key telephone systems and as having agreed to place an initial order with Messagemate for 1000 of its base units.
Some important provisions in the agreement are as follows:
“4.1[Messagemate] agrees, during the term of this Agreement, and subject to the terms and conditions expressed in this Agreement:
(b)    to supply Equipment to Logicom on 30 day credit terms in accordance with clause 9 of this Agreement and the standard terms and conditions set out in SCHEDULE 6;
(c)    to provide training as described in SCHEDULE 7 and advice and assistance concerning the Equipment by telephone during normal business hours in Adelaide;
4.5Logicom agrees to purchase from [Messagemate] at least 2,800 Base Units during the first term of this agreement as follows:
(a)    250 Base Units per month in each of the first 4 months; and
(b)    225 units per month in the fifth to twelfth months inclusive
4.6If the term of this Agreement is extended pursuant to clause 5.1(b) or (c) - in each year of such extended term Logicom will purchase 700 Base Units from [Messagemate] every 3 months during such extended term.
6.2[Messagemate] shall strictly comply with each Purchase Order it being recognised by [Messagemate] that (in particular) time is of the essence with respect to the compliance by [Messagemate] with delivery dates specified in the Purchase Order.
6.3If pursuant to a Purchase Order Logicom orders Equipment of a quantity or at a rate of delivery exceeding those quantities or rates specified in clause 4.5, the delivery date thereof will be not less than 24 weeks from the date of the Purchase Order EXCEPT if the quantities are so large to be considered non-standard or the specifications of the Equipment differ from those set out in Schedule 5 in which case [Messagemate] shall use its best endeavours to deliver such Equipment within 32 weeks from the date of the Purchase Order. In either case, [Messagemate] may deliver such Equipment prior to the delivery date so specified if it is able to do so and in such case Logicom will accept delivery.
6.4Logicom shall, on the date of execution hereof, place with [Messagemate] an initial order for 1,000 Base Units deliverable in the quantities and at the rate set out in Clause 4.5 and [Messagemate] shall deliver the first consignment of 250 Base Units within four months of the date hereof.
7.PRICE
The price of the Equipment shall be as set out in SCHEDULE 5 or as varied from time to time in accordance with provisions of this Agreement.
9PAYMENT
Subject to [Messagemate] having invoiced Logicom for the relevant Equipment, Logicom shall effect payment to [Messagemate] on the 15^th day of the month for all invoices received up to the 15^th day of the previous month. If the 15^th day of the month falls on a weekend or public holiday, payment will take place on the next working day.
10DELIVERY
10.1 [Messagemate] shall supply Equipment the subject of a Purchase Order to Logicom by delivering the Equipment to the storeroom referred to in clause 11.2(c).
11DUTIES OF MAP
11.2 [Messagemate] shall:
(c)make a storeroom at its premises at 39 Charles Street, Norwood in the State of South Australia available for use by Logicom, free of rental or any other charge to Logicom;
13RISK
13.1 Risk of loss or damage to all Equipment consigned by [Messagemate] to Logicom pursuant to this Agreement shall pass to Logicom on the date of dispatch of such goods by [Messagemate].
14WARRANTY
14.1 [Messagemate] warrants to Logicom that:
(b)All Equipment supplied to Logicom will be of merchantable quality fit for the purpose for which it is commonly supplied and correspond to the description in SCHEDULE 5;
15REPLACEMENT PROCEDURE
If Logicom informs [Messagemate] of any design or manufacturing defects relating to any Equipment and such defects or problems are not remedied [Messagemate] shall replace the Equipment in accordance with clause 16.1. The Parties shall comply with the following warranty replacement procedure.
15.1 On Logicom’s written request [Messagemate] shall provide Logicom with replacement Equipment.
15.2 [Messagemate] shall be liable for costs associated with supplying replacement Equipment to Logicom as follows:
(a)all costs of the transport of the replacement Equipment to the storeroom referred to in clause 11.2(c); and
(b)$100 for each replacement Equipment to reimburse Logicom for its costs and expenses in returning to [Messagemate] the defective Equipment and transporting and installing the replacement Equipment.
16MAINTENANCE, SUPPORT AND TECHNICAL ADVICE
16.1 During the term of this Agreement, [Messagemate] shall provide maintenance support services to Logicom at no cost in respect of the Equipment, including but not limited to:
(a)telephone support in the form of consultations, assistance and advice;
(b)use of Remote Diagnostic Test Aids, where possible, and communication of the results of tests conducted by the use of Remote Diagnostic Test Aids;
(c)if such telephone support or use of Remote Diagnostic Test Aids has not resulted or cannot result, in the remedying of the defect or problem reported by Logicom within a reasonable time, [Messagemate] shall replace the Equipment in accordance with clause 15.
17TRAINING
17.1 [Messagemate] shall:
(a)at its cost, conduct training courses (“Training Courses”) as described in SCHEDULE 8 for the benefit of Logicom personnel who regularly work on Equipment installation and servicing at intervals as may be reasonably required by Logicom, at a mutually agreed venue in Adelaide; and
(b)at a reasonable cost to Logicom and upon reasonable notice, conduct Training Courses for such personnel at places in the Territory nominated by Logicom.
21TERMINATION
21.1 Either Party may terminate this Agreement with immediate effect by written notice to the other if the other Party commits any substantial breach of the provisions contained in this Agreement and does not remedy the breach within fourteen (14) days after receipt of written notice requiring it to do so. If the breach is not capable of being remedied, the Party not in breach is entitled to terminate this document with immediate effect by written notice to the other.
21.2 In addition to the right of termination provided for in clause 19, either Party may terminate this agreement if the other Party becomes bankrupt, enters into scheme of arrangement or a composition with, or assignment for the benefit of all or any class of its creditors or upon the appointment of an external administrator (including but not limited to an official manager, receiver, receiver and manager or liquidator) in respect of the other party or any part of its property.
21.3 Any termination under this clause is without prejudice to the rights and remedies of either Party against the other in respect of any antecedent claim or breach of any of the provisions of this document.
24ASSIGNMENT
24.1 The benefit of this Agreement shall not be dealt with in any way by [Messagemate] (whether by assignment or otherwise) without Logicom’s prior written consent, which consent will not be unreasonably withheld.
SCHEDULE 6
The Property in the Equipment specified in the order shall not pass to Logicom until full payment has been made by Logicom.
Delivery shall occur upon completion of loading at [Messagemate’s] premises.
Logicom shall inspect the Equipment upon delivery to Logicom and advise [Messagemate] in writing immediately of any faults or if the Equipment does not conform with the order. Provided the Equipment is not damaged nor used [Messagemate] shall remedy any faults.
If Logicom requires [Messagemate] to deliver any Equipment then Logicom agrees to pay all costs relating to the delivery.
Logicom shall pay the purchase price without deduction and any usual charges from time to time as stipulated by the Agreement for delivery or otherwise.
In the event of a default or breach hereof by Logicom, without prejudice to any other rights of [Messagemate], [Messagemate] may:-
1.retain all monies paid on account of goods or otherwise which shall be forfeited and/or cease further deliveries and/or
2.if Logicom has not paid for the goods then [Messagemate] may enter Logicom’s premises at a reasonable time and recover the goods located therein. Logicom hereby irrevocably grants to [Messagemate] its employees and agents the right to enter Logicom’s premises at any reasonable time to remove goods that have not been paid for by Logicom.”
The reservation (or retention) of title in Schedule 6 may be compared with the forms of reservation which were discussed in New Zealand Forest Products v Pongakawa Sawmill [1992] 3 NZLR 304 and in re Shipton Anderson & Co and Harrison Bros [1915] 3 KB 676. A discussion of the various types of reservation of title clauses in common use will be found in McCormack-Reservation of Title (2^nd ed) at 2. The author there describes the “simple clause” as one where the seller retains ownership in the goods delivered as against the buyer until the full purchase price for goods has been paid. A useful discussion of the effect of such a clause is discussed by Von Doussa J in Roder Zelt-Und Hallenkonstruktionen GMBH v Rosedown Park (1995) 57 FCR 216 at 231-232.
4 The Nature of the Equipment
The equipment is described in Schedule 5 to the distribution agreement. (I was told by counsel that for my purposes the equipment could be regarded as a box which plugged into an existing telephone system. It is programmed to meet the customer’s requirements.)
Schedule 5 states:
“Menus are professionally written and voiced to your requirements by our Message Provider and your system can be updated by your Provider remotely through a telephone line or you can do it yourself by swapping a credit-card sized memory card that will be sent to you.”
Certain service messages included in the menus “are fixed and can only be changed at the factory (or with a portable PC in the field).” The memory card for voicemail messages is available with different capacities - 16MB, 24MB and 48MB. The technical specification in Schedule 5 describes the equipment as a:
“Microprocessor controlled 3 or 5 channel digital message announcer. This machine is totally software controlled and can be programmed to deliver On Hold messages, act as an Automated Operator (Auto Attendant) with Voicemail or perform customised functions.”
Hardware:A modular design allows flexible hardware configuration.
Software:Stored in removable memory card. Easily upgradable.”
It is relevant for the purposes of this action to have some appreciation of the equipment and its application in the hands of Logicom for the purpose of providing a background against which to apply the ROT clause in the distribution agreement and the salvage clause in the insurance policy.
There is a paucity of evidence about the equipment but the arguments advanced by FAI as to how Logicom might deal with the equipment before payment caused me to seek some explanation from counsel which I have treated as constituting common ground between the parties.
5 The bad debts
As now relevant, Messagemate supplied equipment to Logicom upon invoice as follows:

Date

Invoice
Amount

13 November 1998 0072 $349,480

20 November 1998 0087 $1,225

20 November 1998 0088 $275

10 December 1998 0147 $349,270

Total $700,250

Invoices No 72 and 147 are respectively in respect of the first and second “monthly order as per Distribution Agreement”. Each invoice is endorsed:
“Price basis as per Distribution Agreement
Freight not included
Insurance not included
Warranty 12 months
Tax free prices
Delivered into Logicom store 39 Charles St Norwood - …
TERMS NET: PAYMENT DUE BY….”
The price for individual units as shown on the invoice can be verified by reference to the price list in Schedule 4 to the Distribution Agreement (wrongly referred to as “Schedule 5” in cl 7 of the agreement).
The other invoices are in respect of some small sundry orders delivered to nominated persons and showing payment as due 30 days from the date of invoice.
Logicom became insolvent on 10 December 1998 when Receivers and Managers (Messrs Scales & Brennan of Ernst & Young) were appointed to its business. On 29 December 1998 it was placed in voluntary administration and on 2 February 1999 a meeting of creditors resolved that Logicom be wound up and Messrs Cant and Romanis (who had previously been appointed voluntary administrators) became liquidators pursuant to s 439C(c) of the Corporations Law. (see Exhibit P19).
The invoices for the price of the abovementioned equipment remaining unpaid, Messagemate retrieved much of the equipment in January 1999 and after reworking it resold it to Omni Group Ltd for $145,677.54. (No criticism has been made by FAI of the terms of the resale).
Applying these figures to the terms of the policy of insurance Messagemate asserts that it was entitled to be paid by FAI in accordance with the following calculation:
Invoice Totals  $700,250.00
         Insured percentage 85%  $595,212.50
         Less excess      $5,000.00
  $590,212.50
         Less proceeds of sale to Omni Group           $145,677.54
$444,534.96
add 15% of salvage   $21,851.63
Total Initial Loss     $466,386.59
I find that Messagemate did make sales to Logicom in terms of the invoices and that these amounts remain unpaid; I also find that after effecting a partial recovery of goods the plaintiff (after reworking the goods) resold to Omni as set out above In bringing these figures to account under the policy I consider that the excess of $5000 should be deducted from the invoices before the insured percentage (85 per cent) is calculated. After making this adjustment the total initial losses becomes $467,136.59).
6 The Claim and Response
On 15 December 1998 (and being on notice of Logicom’s early financial failure) Mr Dennis Basheer as a Director of Messagemate completed a claim form claiming 85 per cent of $700,250. On 8 January 1999 Mr Manning of NCI notified FAI of steps being taken by Messagemate with regard to the recovery of stock under the ROT clause and of investigations being undertaken as to the feasibility of modifying the equipment for resale to the Omni Group. Although Logicom collapsed almost as soon as it started to trade there is nothing to suggest that this was otherwise than a business venture simply gone wrong. I have not been told the precise reason for the failure.
By letter dated 13 January 1999 Cosoff Cudmore and Partners on behalf of FAI wrote to NCI in the following terms:
“…We now write to inform you of FAI’s decision with respect to policy indemnity.
FAI declines to indemnify the Insured pursuant to Trade Credit Policy of Insurance no. 5041578540 covering the period 1 November 1998 to 1 November 1999 in respect of the claim the subject of the Insured’s claim form dated 15 December 1998 provided to FAI under cover of your memo to FAI dated 16 December 1998.
The Insured entered into a Distribution Agreement with the Customer containing a binding and effective retention of title clause in respect of the relevant goods, the effect of which is that legal title to the goods has not transferred from the Insured to the Customer. Accordingly, the goods have not been “delivered” by the Insured to the Customer within the meaning of that term as defined in the Policy. FAI otherwise reserves its position fully in respect of its rights and entitlements under and with respect to the relevant policy….”
By letter dated 28 January 1999 Cosoff Cudmore confirmed the attitude of their client (as previously expressed). They contended that there was not a sale of goods but only an agreement for sale and that any right of damages for breach of that agreement did not give rise to an insured debt.
7 The principles of law as to construction of insurance contracts
The parties were not at difference upon these well known principles which as now relevant may be summarised as follows:
“(1)An insurance policy is a species of commercial contract. It must be interpreted so as to give the words used their ordinary meaning. The primary duty of a court is to discern from the language, structure and apparent purpose of the document what it means. A court should give the words used their ordinary operation. The Court is to search for the meaning of the words used. If in those words there is only one meaning, a court may not reject it simply because it regards the result as unfair or otherwise undesirable.
Johnson v American Home Assurance Co (1998) 192 CLR 266, per Kirby J at p272.
McCann v Switzerland Insurance Australia Ltd (2000) 176 ALR 711 at 716 & 725-7.
(2)Where a word or a phrase has a settled meaning in insurance contracts, the Court will hesitate before departing from that meaning.
Johnson v American Home Assurance Co supra.
(3)A fair and reasonable construction should be adopted which would take into account the variety of persons entering into an insurance contract of the type in question. The ordinary meaning of the words in a policy is to be ascertained having regard to the context in which they appear, the purpose of the policy, the presumed common intention of the parties and in the light of all the relevant circumstances, or objective background facts, known to both the parties. The presumed intention must be derived from the words used in the policy and the objective facts.
Johnson v American Home Assurance Co supra.
Botany Fork and Crane Hire v New Zealand Insurance (1993) 44 FCR 27 at 30-31.
Australian Casualty v Federico (1986) 160 CLR 513 at 520
United City Merchants v MGICA (1985) 3 ANZ Ins Cases 60-603 at 78673.
Wilson v Harvey Trinder [1973] 2 NSWLR 870 at 874-875.
(4)It is the objective intention of the parties that the court looks to only and not the subjective intention or actual intention of the parties. The fact that a particular assured has interpreted the words in a particular way is irrelevant.
Bank of Australia v North German Insurance (1898) 17 NZLR 387 at 399
Todaro v Farmers and Graziers Co-Op [1982] VR 73 at 79.
Nosic v Zurich Australian [1997] 1 Qd R 67 at 77 & 78.
(5)The meaning to be given to the insurance policy must take into account the commercial and social purposes for which it was written. Wherever possible, an absurd or manifestly unjust result will be avoided upon the hypothesis that such would not have been intended by the parties. However, because the primary search is for the ordinary and fair meaning to be attributed to the words used, no court is authorised under the guise of construction, to make a new contract for the parties which is at odds with the terms of the contract to which they have agreed.
Johnson v American Home Assurance Co supra
Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 387-388
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
(6)If the words used in the policy are intractably ambiguous, the words will be construed contra proferentem. This principle is to be applied as a “last resort” if the true meaning cannot otherwise be determined from dictionaries and logic alone. The maxim does not apply if the words used in the policy are not ambiguous, obscure or uncertain. An apparent ambiguity in the policy may be resolved by reading it as a whole and in examining the commercial purpose of the contract.
Johnson v American Home Assurance Co supra
MGICA v United City Merchants (1986) 4 ANZ Ins Cases 60-729
CE Heath v Edwards Dunlop (1993) 176 CLR 535 at 541-542
Maye v Colonial Mutual Life (1924) 35 CLR 14
Darlington v Deko (1986) 161 CLR 500 AT 510-511.”

I am indebted to Mr Dal Cin of counsel for FAI for preparing this summary of the principles. Mr Clayton QC’s summary on behalf of the broker (which covered much the same ground) was equally useful but it is unnecessary to reproduce both; Mr Clayton QC based his argument upon the principles as set out in Kelly & Ball - Principles of Insurance Law par 5.0280-5.0340). He referred me also to Derrington & Ashton on the Law of Liability Insurance Chapter 3 where the following extracts from the text are particularly in point:
At 110:
“The basic purpose of the policy and the hazards which it was intended to afford protection will usually be relevant to construction. Where there is inconsistency or ambiguity in the terms of a policy, regard must be had to its plain object and portions may be modified or rejected to achieve that plain object and the court may make use of its knowledge of what type of policy would ordinarily be required by persons in the position of the insured, so that the policy will not be construed so as to defeat its object nor so as to render it practically illusory. In order to avoid that result, “some qualification must be put on the words used”…”
at 113:
“Alternatively to the above principles, a construction will not be adopted the effect of which would be to restrict the cover to the point of absurdity. There is a cognate principle to that relating to commercial absurdity. Where one construction would have the effect of rendering the term meaningless, an alternative construction avoiding this result will be preferred. “This is so unreasonable that it must make one search for some other possible meaning of the contract. If none can be found then (the insured) must suffer the consequences. ”
8 The construction of the policy of insurance
(i) Analysis of FAI’s arguments
For the purposes of FAI’s argument the relevant provisions of the insurance policy are:
(1)the terms of the “indemnity agreement” clauses (providing for indemnity for the direct loss arising from non payment of insured debt)
(2)the definition of “delivered”.
(3)the definition of “Insurable Turnover.”
(4)the definition of “Insured Debt”.
FAI argues:
(a)that the cover only extends to unpaid debts and that Messagemate’s losses sound in damages and are not the subject of the indemnity.
(b)that the debt must arise from a sale of goods and not from an agreement for sale.; it is contended by FAI that a credit transaction in accordance with the Distribution agreement does not give rise to a sale of goods (see Shaw v Commissioner of Police [1987] 1 WLR 1332 at 1336-7).
(c)that delivery for the purposes of the policy requires (inter alia) legal title to the goods to be transferred to the buyer.
In response to these arguments my opinion is as follows:
(a)that the subject matter of the insurance cover is the “invoice value” of specified goods; the risk is the “direct loss” arising from non payment of debt upon insolvency. Although the amount of this loss will equate to the invoiced amounts representing the price of goods the direct loss is referable to the fact of non payment.
The seller’s direct loss is a liquidated sum equal to the price of the goods irrespective of the remedies which may be pursued against the purchaser personally or with respect to the goods.
The seller’s right to sue for the price is independent of the concurrent exercise of remedies against the goods as self help to secure a form of preference over the general creditors of the bankrupt buyer (see Benjamin’s Sale of Goods 5^th ed at 15-001 - 15-006).
The seller did not here terminate the contract so as to release the buyer from further obligation; on the contrary Messagemate has enforced its right under the contract upon the buyer’s default. To the extent of its inability to recover payment of its invoices it has suffered a direct loss of the type described in the policy subject to the bringing to account salvage recouped upon the recovery and resale of the goods.
(b)When the general property in goods is to be transferred at some future time or subject of some condition the transaction which constitutes the contract is classified as an agreement to sell (rather than “a sale”) for the purposes of the Sale of Goods Act (SA) 1895. Nevertheless, where (as here) goods are appropriated in accordance with the distribution agreement and supplied to a buyer at the buyer’s risk subject to an obligation to pay the price on a fixed future day I consider that for the purposes of the insurance policy a “sale” of goods has occurred notwithstanding that the transfer of property has not occurred. As a matter of construction of the document I would not carry through into the policy the distinction drawn in s 1 of the Sale of Goods Act between a “sale” and an “agreement to sell”.
(c)“Legal title to the goods” for the purposes of the definition of “delivered” in the policy will be satisfied by a transfer to the purchaser of either the legal ownership of the goods or a possessory title. I use the expression “the legal ownership of or a possessory title to the property” in the same way as used by Lord Brandon in Leigh and Sillavan Ltd v Aliakmon Ltd [1986] AC 785 at 809 (“The Aliakmon”). (This second limb of the definition of “Delivery” in the policy must be read in conjunction with the first limb which requires the passing of physical control of the goods to the insured buyer).
It is apparent from the meaning to be given to “delivered” that the FAI policy does not apply in circumstances in which the goods remain in the possession of the vendor or in circumstances where there has been a stoppage in transit (if physical control has not passed to the buyer). The policy will not provide an indemnity against the risk of fraud in respect of goods which have not actually been delivered to the customer or where the nature of the fraud is such that the customer cannot establish any right to the goods; the policy cover does not extend to a case such as MGICA v United City Merchants (1986) 4 ANZ Ins Cas 60-729 (where a fraud was perpetuated in circumstances where the insured and its customer did business on the faith of documents alone). The policy will not apply to transactions in which the buyer has not yet acquired at least a possessory title sufficient to enable the buyer to maintain in the buyer’s name an action in tort for negligent handling of the goods. Where, in cases of sales on credit the risk in the goods is transferred ahead of ownership there will be the possibility that if the goods are lost or damaged in transit the seller will be entitled both to the price and to the damages - giving rise to accounting problems as between buyer and seller. When the interest of an insurer in “the price” is superimposed upon the interests of the seller one may see why an insurer would wish to avoid such a situation in which the insurer may be dragged into a dispute between seller and buyer. The intention of the FAI policy is that the cover does not extend to a debt “whilst a dispute exists of any nature between the “Insured” and the “Insured Buyer” or if for any reason the “Insured Buyer”, is entitled or obligated to refuse payment of an “Insured Debt”. (see definition of “Protracted Default”).
It seems to me that in providing its standard terms of policy FAI and its advisers were likely to be aware of the problems posed by TheAliakmon, and by Mitsui & Co Ltd v Flota Mercante Grancolombiana SA [1988] 1 WLR 1145 and by Obestain Inc v National Mineral Development Corporation Ltd (‘The Sanix Ace’) [1987] 1 Lloyd Rep 465. They were likely also to have been aware of the Privy Council’s decision in Candlewood Corpn v Mitsui Ltd (Mineral Transporter) [1986] AC 1 confirming the important distinction between contractual rights in a chattel and proprietary or possessory rights for the purposes of the law of negligence.
The insurance policy must be construed by reference to its own terms but it is not difficult to see why the standard policy defined “delivered” in the manner adopted.
(ii) The policy applied to a commercial environment
The dichotomy between physical control and legal title in the definition of “delivery” would suggest that the insurance policy may have been designed to exclude CIF and FOB type contracts in which the rights of the parties depend upon the state of the documents rather than factors which include proof of the immediate physical whereabouts of the goods and the identity of the person who is exercising physical control at that place. (In his evidence Mr Manning explained the special risks from an insurer’s point of view with respect to these type of contracts which may justify an additional insurance premium).
In The Aliakmon Lord Brandon identified the difficulties in recognising equitable ownership of goods “within the confines of any ordinary contract of sale particularly with respect to CIF and C and F contracts.
At 809 Lord Brandon said:
“In terms of the present case this means that, if the buyers had completed the c and f contract in the manner intended, they would have been entitled to sue the shipowners for the damage to the goods in contract under the bill of lading, and no question of any separate duty of care in tort would have arisen. In the events which occurred, however, what had originally been a usual kind of c and f contract of sale had been varied so as to become, in effect, a contract of sale ex-warehouse at Immingham. The contract as so varied was, however, unusual in an important respect. Under an ordinary contract of sale ex-warehouse both the risk and the property in the goods would pass from the seller to the buyer at the same time, that time being determined by the intention of the parties. Under this varied contract, however, the risk had already passed to the buyers on shipment because of the original c and f terms, and there was nothing in the new terms which caused it to revert to the sellers. The buyers, however, did not acquire any rights of suit under the bill of lading by virtue of section 1 of the Bills of Lading Act 1855. This was because, owing to the sellers’ reservation of the right of disposal of the goods, the property in the goods did not pass to the buyers upon or by reason of the endorsement of the bill of lading, but only upon payment of the purchase price by the buyers to the sellers after the goods had been discharged and warehoused at Immingham. Hence the attempt of the buyers to establish a separate claim against the shipowners founded in the tort of negligence.”
(Emphasis added).
And at 811:
“…buyers under a cif or c and f contract of sale were persons to whom it was intended that the legal ownership of the goods should later pass, and who were therefore prospectively, though not presently, the legal owners of them.”
And at 812-3:
“…Mr Clarke put forward two propositions of law. The first proposition was that a person who has the equitable ownership of goods is entitled to sue in tort for negligence anyone who by want of care causes them to be lost or damaged without joining the legal owner as a party to the action. The second proposition was that a buyer who agrees to buy goods in circumstances where, although ascertained goods have been appropriated to the contract, their legal ownership remains in the seller, acquires upon such appropriation the equitable ownership of the goods. Applying those two propositions to the facts of the present case, Mr Clarke submitted that the goods the subject matter of the c and f contract had been appropriated to the contract on or before shipment at Inchon, and that from then on, while the legal ownership of the goods remained in the sellers, the buyers became the equitable owners of them, and could therefore sue the shipowners in tort for negligence for the damage done to them without joining the sellers.
In my view, the first proposition cannot be supported. There may be cases where a person who is the equitable owner of certain goods has also a possessory title to them. In such a case he is entitled, by virtue of his possessory title rather than his equitable ownership, to sue in tort for negligence anyone whose want of care has caused loss of or damage to the goods without joining the legal owner as a party to the action: see for instance Healey v Healey [1915] 1 KB 938. If, however, the person is the equitable owner of the goods and no more, then he must join the legal owner as a party to the action, either as co-plaintiff if he is willing or as co-defendant if he is not. This has always been the law in the field of equitable ownership of land and I see no reason why it should not also be so in the field of equitable ownership of goods.
With regard to the second proposition, I do not doubt that it is possible, in accordance with established equitable principles, for equitable interests in goods to be created and to exist. It seems to me, however, extremely doubtful whether equitable interests in goods can be created or exist within the confines of an ordinary contract of sale. The Sale of Goods Act 1893, which must be taken to apply to the c and f contract of sale in the present case, is a complete code of law in respect of contracts for the sale of goods. The passing of the property in goods the subject matter of such a contract is fully dealt with in sections 16 to 19 of the Act. Those sections draw no distinction between the legal and the equitable property in goods, but appear to have been framed on the basis that the expression “property”, as used in them, is intended to comprise both the legal and the equitable title. In this connection I consider that there is much force in the observations of Atkin LJ in In re Wait [1927] 1 Ch 606, 635-636, from which I quote only this short passage:
“It would have been futile in a code intended for commercial men to have created an elaborate structure of rules dealing with rights at law, if at the same time it was intended to leave, subsisting with the legal rights, equitable rights inconsistent with, more extensive, and coming into existence earlier than the rights so carefully set out in the various sections of the code.”
These observations of Atkin LJ were not necessary to the decision of the case before him and represented a minority view not shared by the other two members of the Court of Appeal. Moreover, Atkin LJ expressly stated that he was not deciding the point. If my view on the first proposition of law is correct, it is again unnecessary to decide the point in this appeal. I shall, therefore, say no more than that my provisional view accords with that expressed by Atkin LJ in In re Wait.”
There is some inconsistency on the face of the FAI insurance policy in the use of the word delivered; sometimes it is written with a capital “D” and sometimes it appears with or without quotation marks. I have assumed that the word is used in its defined sense unless where the context is clearly inconsistent with such a meaning. Therefore, for example in the context of “insured turnover” the exclusion of “cash sales where payment is received on or before the delivery of the goods” requires that “delivery” to be given its ordinary meaning.
The premium paid upon the policy was calculated on the whole of Messagemate’s turnover which was subject to the ROT. Unless the policy is construed in the manner which I have indicated I cannot identify any risk to which the policy might attach under the Distribution Agreement in the absence of some implied right to dispose of goods without paying for them. Having regard to the nature of the goods (which I have described in some detail) I would be slow to imply any such right. (I refer to Part 11 of these reasons where I specifically refuse to make a finding that Logicom was permitted to dispose of goods without paying for them).
In Romalpa the buyer was expressly entitled (subject to conditions) to on-sell the goods to a third party. That is not the present case. In some cases the goods in question will be delivered for use in some manufacturing process at a time before they could have been paid for (see for example Clough Mill v Martin - [1985] 1 WLR 111 at 119 and 125); that is not the present case. The present case is more like Hendy Lennox v Grahame Puttick [1984] 1 WLR 485 where diesel engines were incorporated into generating sets but could be removed from the set within several hours. In the present case I can find little if any work for the insurance policy unless the cover be with respect to the general dealings under the distribution agreement. (For a recent discussion of retention of title clauses I refer to re Associated Alloys v ACN 001 452 106 (1990) 171 ALR 568 in which case a trust was created in favour of the seller where the seller’s goods were incorporated into some manufacturing or construction process).
In seeking an understanding of the workings of the FAI policy I keep in mind that the policy is a standard document undoubtedly designed to meet situations far removed from the present. The cover is in respect of bad debts arising upon the sale of goods; the cover is not one to protect an insured trader against defects in title to goods which he sells. A dealer in second hand cars may sometimes be faced with the fact that an item of stock which has passed through his sales yard turns out to have been stolen. These are the facts of Rowland v Divall [1923] 2 KB 500; in that case the dealer (having on sold the vehicle) sued the seller to recover the price. If a person sells stolen property his purchaser acquires neither a property in the vehicle nor lawful possession (see per Atkin LJ at 506). Therefore, the innocent dealer does not acquire property or lawful possession and upon on-selling cannot give to his purchaser a title or right of possession as against the true owner. Applying these facts to the FAI standard policy no cover would be provided to the dealer for his price if he sells the vehicle upon credit; in the case of a stolen vehicle no right to possession or other title passes to the purchaser (the customer of the dealer) who, of course, remains liable in conversion to the true owner. This is yet another practical example which helps to explain the meaning and operation of the FAI policy in a commercial setting.
9 The policies offered by other insurers
An issue in this case is whether the broker NCI in its advice to Messagemate should have drawn attention to alleged differences in the standard terms offered by FAI and other insurers standing in the market. NCI provided to the plaintiff quotes and an accompanying analysis based on the standard terms offered by HIH Winterthur and Commercial Union as well as FAI. Copies of these standard policies other than FAI are not in evidence but there was evidence that the FAI policy was different from other “comparable” policies in the way in which it defined the word “delivered”. Mr Carlier gave evidence that none of the other policies offered in the market contained a clause along the lines of the FAI concept of “delivered”.
The standard policies offered by Royal and Sun Alliance (Exhibit P27) and QBE Trade Indemnity (Exhibit P28) are before me as “indicative” of the terms which were generally available in the market otherwise than from FAI.
However the wording of the QBE policy according to Mr Carlier was adopted after the date of the Messagemate transaction. The value of the evidence about the QBE policy is marginal.
My conclusion is that the various policies (including that of FAI) available in the market offered much the same cover and that the competition between the insurers was generally confined to the actual premiums. All policies bear a close resemblance to each other despite some cosmetic differences in language.
The Royal and Sun Alliance policy contains a definition:
““Delivered” means the goods have physically passed from your control into the exclusive physical control of the Insured Customer, of the Insured Customer’s agent or of someone at the direction of the Insured Customer. “Deliver” and “Delivery” have corresponding meanings.”

The QBE policy contains a definition:
““delivered” and “delivery” in respect of goods means the time at which such goods physically pass from the Insured into the exclusive physical control of the Insured Buyer or the Insured Buyer’s agent (which transaction must be completed within the Policy Period).”
Each of these definitions in context in my opinion refers to the lawful physical control and custody of the goods. However, the Royal and Sun Alliance policy specially deals with consignment stock whilst the QBE policy expressly excludes losses arising from consignment stock or bailment stock. The QBE policy includes within the concept of “insured debt” the face value of a bill of exchange accepted by the insured buyer in respect of the invoice value of the goods.
In view of the way in which this case was conducted at trial I have set out these extracts from the policies which were under comparison but the more appropriate approach is to compare the overall effect of the various policies as a whole in relation to the circumstances of Messagemate in the latter part of 1998 when the plaintiff was looking for trade credit insurance cover. It would obviously be better that I should have had before me the standard policies of HIH Winterthur and Commercial Union bearing in mind that quotes were obtained from those companies for Messagemate. However, Messagemate’s advisers had to do the best which they could with the available evidence and despite the weaknesses in the process of comparison which is available to me, the oral evidence satisfies me in a general way as to what was available in the market as an alternative to the FAI product.
The development of the plaintiff’s case so as to draw a distinction between the FAI policy and the “rest of the market” appears from the following samples of Mr Carlier’s cross-examination on behalf of the plaintiff:
“QThere is, of course, as is established by the pleadings and the correspondence that everyone is now familiar with, a difference in wording between the FAI domestic policy and other policies of insurance with respect to the topic retention of title clauses, and in particular the definition of ‘delivered’, isn’t there.
AThat’s correct.
QIt’s very apparent, isn’t it, when one reads the document, if you choose to do it, with an eye of someone who’s used to these documents, that that difference exists; isn’t that so.
AYes, that’ correct, but - ”
And at 339-340:
“QYou had observed in the past before September ’98, that the definition of ‘delivered’ as appears in the definitions section of P13 says that it means “The time during the policy period at which goods passed from the insured into the physical control of the insured buyer, and legal title to the goods has transferred from the insured to the insured buyer’; isn’t that so.
A That’s correct.
QIn relation to other policies, you had also read those other policies as they existed before September 1998, those policies being policies that provide a trade credit insurance.
AThat’s correct.
QYou had seen a similar structure of definitions being provided in each of those policies.
AThat’s correct, yes.
QYou would have, from time to time, read the policies.
ACorrect.”
And then this generality in terms of comparison is translated into a specific comparison:
“QOn a moment’s reflection, it would have been obvious to you that at least the wording of the FAI policy and its definition of ‘delivered’ was different to the wording of the Sunalliance policy and its definition of ‘delivered’; isn’t that so.
ACertainly the wording is different, yes.”
Upon my reading of the FAI policy (and despite this cross-examination) there is nothing which would suggest to a broker such as NCI that (as now relevant) the FAI policy was significantly different from other policies available in the market place although there were cosmetic differences. To the extent it may be relevant the extensive practical experience of NCI in relation to the effect of the policy in a commercial environment would tend to confirm the efficacy of the form of the FAI policy. This experience does not absolve NCI from such responsibility which it might have otherwise; nevertheless, in making its recommendations a broker is not required to disregard the history of a form of insurance policy which has been extensively and variously exposed to the vicissitudes of claims experience and which under test has operated satisfactorily. There is not even a hint in that experience to put NCI on notice that FAI’s definition of “delivered” in its policy required special attention in a process of comparison with other policies available in the market.
NCI has sought to develop this experience as giving rise to a convention as against FAI. In my opinion the evidence does not go as far as that. In December 1994 FAI took part in a trade seminar at Glenelg when it introduced its trade credit insurance policy and explained its operation; Mr Rosen made the presentation on behalf of FAI; the thrust of his remarks was that the FAI policy was “virtually identical” to other policies in the market. In 1995 Mr Melrose the underwriting manager of FAI explained the new policy document to Mr Manning and three other NCI personnel in Melbourne; there was nothing in this explanation to put NCI on notice of anything out of the ordinary in FAI’s policy. In my opinion the evidence on this topic was insufficiently specific to be of much use.
10 NCI’s protest
Part 6 of my reasons recites the crucial events as to the making of the claim. Within a month thereafter by its letter of 13 January 1999 FAI’s solicitors had notified the insured of the rejection of the claim. On 22 January 1999 Mr Manning of NCI wrote to FAI as to the significance of Retention of Title. His letter says:
“RETENTION OF TITLE
In light of the recent decision made on the Messagemate claim, it is quite apparent that where Retention of Title is in place, an argument over the Insured Debt will occur on each and every occasion.
Carter Holt Harvey and Metal Manufactures both have Retention of Title clauses. Based on the interpretation outlined in the letter regarding Messagemate, no claim will ever be paid.
We need a clear and decisive opinion as to how you intend to handle Retention of Title claims in the future and an acknowledgment of the transfer of title for Credit Insurance purposes.
It is worthy of note that Retention of Title has not been handled in this way in any other claim submitted to FAI since the inception of the product and are most concerned that the decision is quite a departure from precedent previously set.”
In my opinion FAI’s approach to Messagemate’s claim was (as Mr Manning’s letter asserts) a “departure from precedent previously set”. A body of evidence was put before me as to NCI’s claims experience for its clients upon the standard FAI policy. NCI’s third party claim (par 12.6) provides particulars of 117 transactions where it claimed to have brokered trade credit insurance between its customers and FAI. In some individual cases the policy periods have been extended many times; FAI pleads that these policies are irrelevant except with respect to 26 transactions and acknowledges (in par 30D of its defence to third party notice) that with respect to 14 transactions (as particularised) there were claims made by insured where the goods in question were sold subject to ROT conditions. Paragraph 30E of this defence reads:
“As to paragraph 12.6, FAI says that the allegation therein is not relevant to the plaintiff’s within causes of action against FAI. Under cover of that objection, FAI says that the claims referred to in paragraph 12.5 arose in different circumstances to the subject claim, and FAI’s position in respect of each such claim was not in any way inconsistent with the grounds upon which it has denied indemnity in respect of the claim the subject of these proceedings.”
Against this background, NCI called evidence as to the handling of nine separate claims where the terms of the insured’s trading included an ROT clause.
In final address counsel for FAI put to me that the evidence on this topic established the following:
(i)“Out of 117 FAI policies brokered by NCI in the period March 1995 to January 1999, claims were made on only 9 where the insured’s trading terms included an ROT clause.”
(ii)“In those 9 cases, on only 2 occasions were goods in fact successfully recovered under an ROT clause (Exhibit D68, Dataflow Computer Services/The Gamesman and PGA Timber/Excel Enterprises)”.
(iii)“On both of those 2 occasions, the invoice amount for the goods in fact recovered was deducted from the insured debt and recovered goods were not treated as salvage by either NCI or FAI. (Exhibits X74 and X75)”
(iv)“There cannot possibly be any understanding other than that invoices for recovered goods are not included in the insured debt.”
(v)“In each of the remaining 7 cases, either NCI advised FAI that no goods were able to be recovered, (Exhibit D68, Allnett Technology/Customer Cabling; Blucher/Borjeson; Flickers Australia/OB Clothing; and Twenty Eighth Repelux/John Benjamin) or on the basis of advice from NCI, FAI assessed the ROT clause as unlikely to successfully lead to the recovery of goods (Exhibit D68, Braemac/Rimfield; Dataflow Computer Services/Foundation Technologies and Dataflow Computer Services/Collinscroft). In none of those cases were goods successfully recovered. The question of cover for goods recovered under a valid and effective ROT clause did not arise.”
(vi)“There is simply no evidence to support the convention alleged by NCI.”
Subject to what I am about to say I reject submissions numbered (iv) and vi); I do not find the evidence sufficient to establish the alleged “convention” but it was sufficient to give rise to an expectation on the part of NCI as to how the standard policy operated. The remaining submissions in this list of six points are simply one way of looking at the facts through the eyes of FAI. The significant feature of this evidence is that it shows how differently FAI approached the construction of the policy in the present case when compared with other cases. In the present case FAI relied upon the presence of the ROT clause and its interpretation of “deliver” in the policy so as to limit the ambit of the risk. In no other case to which I was referred did FAI peremptorily reject the claim based upon the interpretation of the policy which is now advanced. Other claims were allowed to proceed and effect was given to the ROT clause as salvage was being assessed.
At the time when FAI rejected Messagemate’s claim in January 1999 the situation was fluid as to how Messagemate might be able to modify and turn recovered stock to account by making it compatible with a different telephone system than that for which it had been manufactured. There was some stock (albeit not of large value) which could not be located. By letter dated 25 January 1999 NCI informed FAI’s solicitors of progress in recovery of stock from APT Logicom and reported that there was a difference of $21,140 between invoice value of stock supplied and recovered. Despite this notification FAI’s solicitors on 28 January 1999 confirmed their client’s rejection of the claim upon the basis that “delivery” of the goods to the buyer Logicom had not occurred and contending that the goods had not been “sold”. The letter noted that the “goods have (mostly) been returned”. In light of argument addressed at trial FAI would be liable at least for unrecovered stock to which the ROT clause could operate and yet FAI apparently was prepared to dismiss Messagemate’s claim out of hand in terms of its solicitors’ two solicitors in January 1999.
The letter of 28 January 1999 (whilst rejecting the claim) seeks further information concerning the goods representing the abovementioned amount of $21,140. A requisition is thereby raised seeking to establish whether these goods had been “delivered to the customer’s premises”. The distribution agreement did not provide for delivery in this fashion. Delivery in effect was “ex warehouse” into a secure area of the plaintiff’s own premises at Norwood. In my view the requisition was unjustified and suggests to me that this is yet another example of FAI seeking to create difficulties for the insured. The letter of 28 January 1999 also seeks confirmation as to “whether the receiver has checked the customer’s records to determine whether the goods were in fact on-sold by the customer prior to the appointment of the receiver”. I consider that the requisition was strictly irrelevant to the claim and formed part of a stalling tactic by FAI; I do not consider that as at the end of January 1999 there was any matter outstanding which would have enabled FAI properly to resist the claim. Indeed by 1 February 1999 I consider that the 30 days allowed under the policy for processing the claim had expired. (It is on this basis that I have allowed a claim for interest as from 1 February 1999).
I consider that the evidence justifies the following conclusions:
(i)FAI’s past dealings with NCI (particularly where an ROT clause was used in trading) established a basis upon which NCI was entitled to rely for the purpose of representing to Messagemate how FAI might be expected to respond to a claim under the policy in the future; this finding is important so as to dispose of part of the Trade Practices Act (and Fair Trading Act) claim against NCI. The FAI policy specifically required payment within a 30 day time limit (see cl 8 - “Claims”). I consider that this fact together with the history of NCI’s claims experience with FAI amply justified NCI’s representations to the plaintiff as to how Messagemate could expect a just claim to be dealt with in a timely fashion (as set out in Exhibit P5 under the heading “Claimable situations”).
(ii)FAI’s history of dealing under the standard policy with NCI’s customers created a situation where FAI in the present case was seeking to give the language of the policy a new and special meaning. If FAI were acting in good faith it is difficult to see how it could have justified its calculation of premium in the present case upon the basis of the information before it. FAI claims that (as relevant) no “sales” by Messagemate took place by virtue of the ROT clause until payment had been made for the goods. The combined effect of all the matters mentioned in this section of my judgment evidences the fact that the bona fides of FAI in some respects are lacking. There has been departure from standards which are required by s 13 and 14 of the Insurance Contracts Act and which should be applied. Independently of that conclusion I consider that s 37 of that Act also will apply so as to treat the meaning attributed by FAI to the definition of “delivered” (if it be correct) as an unusual term and requiring prior notice in writing by the insurer “of the effect of the provision”. Such notice was not given.
(iii)FAI’s behaviour in providing the policy should (in light of its attitude to the subsequent claim) be treated as misleading and deceptive conduct within s 52 of the Trade Practices Act; in this respect the disclosure of the ROT condition on the policy proposal in answer to the printed question on the form (in light of the manner of calculation of the premium upon insured turnover) is a factor of significance.
In my view the advice which NCI and Mr Carlier (as specialist brokers in the field) provided to Messagemate was amply justified by an examination of the policy (standing alone) and also by reference to NCI’s extensive experience where the practical application of the policy had been previously tested.
On 6 January 1999 Mr Zambetti (who was apparently in charge of the claim at that time in FAI legal department) telephoned Mr Graham Crozier (at that time Underwriting Manager of trade credit and financial risks for FAI); Mr Zambetti’s file note with respect to this claim says:
“Telephoned Graham Crozier and explained to him the view we took of the operation of the policy and simply wanted to warn him that he could be approached by the broker.”
I infer that this “warning” was given by Zambetti because he knew that FAI was adopting an interpretation of the policy which was out of the ordinary and fashioned in order to create difficulties for Messagemate. Mr Zambetti did not give evidence and his absence from the witness box is a factor which makes it easier for me to draw the abovementioned inference. However, the evidence of Mr Crozier establishes that this claim was not handled in the ordinary office routine but instead went to the FAI legal department.
11 The Evidence
The case is so extensively documented (including file notes of conversations after the claim was made) that there is not much scope for difference upon the oral evidence. However, I reach the following conclusions upon two matters which were contentious:
(i)I find that FAI did not receive a copy of the Distribution Agreement until NCI forwarded a copy on or about 16 December 1998 under cover of a letter (Exhibit D45). Previously Mr Dowling of FAI had been to the premises of Logicom in the course of assessing the proposal for insurance and discussed the business operation generally with Mr Beyer; they discussed the terms of trading “in very broad terms” but although Mr Dowling was on notice that the terms included an ROT clause he did not seek any further detail thereof.
(ii)I find that (as relevant) there was no arrangement in force between Messagemate and Logicom beyond that contained in the Distribution Agreement. (FAI put an argument during final address to suggest that “under the distribution arrangements Logicom was permitted to on-sell goods without reference to Messagemate and adapt the goods for the needs of a particular client.” FAI would seek to argue its case upon the footing that the simple ROT clause had been modified in practice. I do not consider that there is a factual basis for such an argument).
Evidence was given by Mr Basheer on behalf of Messagemate Mr Carlier, Mr George and Mr Manning from NCI and Mr Crozier and Mr Dowling on behalf of FAI. In my view all witnesses gave evidence in a satisfactory way and to the best of their ability to recall events. I was particularly impressed with the evidence of Messrs Carlier and George whom I considered to have a very good grasp and recollection of the events and to be generally knowledgeable. Although Mr Manning a Managing Director of NCI was confused about dates in December 1998 I was impressed by his insurance experience. I reject the suggestion made by FAI that Mr Manning and Mr George were party to a strategy in which FAI might accept the claim without knowing that the goods had in fact been recovered by Messagemate. I consider that Mr George’s complete evidence when read in context speaks for itself:
“QYou are seeking to obtain the provisional acceptance of the claim by FAI, without FAI knowing that the goods had been physically recovered yet, weren’t you.
AYes.
QAnd the reason for that was that you knew that if the goods were physically recovered, FAI will take the position that the recovered goods would be deducted at invoice value from the insured debt.
ANo, that’s not correct.
QWhy were you seeking to have FAI provide a provisional acceptance of the claim without knowing that the goods had been physically recovered.
AOur intention was to enter into negotiation with the insurer after the claim had been accepted, subject to the retention of title, to achieve the best possible outcome, salvage outcome, on those recovered goods. Parties were aware that the goods in question were unable to be recovered at the full invoice value. That had been made quite clear to FAI in previous correspondence, that the product required considerable reworking to make it compatible for another purchaser in the market.
QAre you seeking to argue NCI’s case in your answers.
ANo.
QIt’s the case, isn’t it, that you considered that if FAI knew that all the goods, or a substantial proportion of the goods, had been recovered, the claim would be reduced to nil, or a nominal amount.
AI never at any stage believed that FAI would do that in their calculation of liability, no. I expected the claim to be accepted in full, subject to the outcome of retention of title.
QIs the reason you expected that this: that you thought that NCI would be able to negotiate a commercial resolution of the matter with FAI.
AThe reason I expected that was industry practice, and that yes, NCI would be able to negotiate, in consultation with Messagemate and FAI, the best possible return in relation to the recovered goods.
QTo be quite clear about this, NCI doesn’t rely on industry practice in this case; it relies on practice in its dealings with FAI. Now there is nothing in your dealings with FAI that would have led you to expect that otherwise than out of some commercial resolution outside the policy, FAI would accept the claim if the goods had been recovered, was there.
AYes, there is. We went through examples yesterday from the spreadsheet, one in particular for Dataflow and Foundation Technologies, where the claim was paid and the ROT claim was still progressing, and industry practice extends to the point where we were advised, when FAI entered the market, that the policy would operate no different to other trade credit insurers in the market, so that’s industry practice, and the Dataflow example, the Braemac example, where Melrose has advised in writing that any recoveries, whether it be stock or monies, would be treated as salvage, further supported by an assertion that that’s how this claim should be treated - would be treated.”

I consider that NCI was using its experience in the search for a practical solution to the problem. In my opinion there was no justification for the criticisms advanced by FAI of NCI. It is true that there was no provision in the policy for a “consultation process”. It was also the case that Messagemate may well have been able to argue that in the salvage process it had no obligation to deal with Omni upon the basis which it did. No doubt the price upon which it dealt with Omni (as brought to account in the salvage) must have reflected the nature and extent of the reworking of the equipment and the assurances which Messagemate as a matter of commercial judgment were able to give Omni. In my opinion FAI was entitled to be kept informed of Messagemate’s salvage proposals and to monitor what Messagemate was doing to help itself (and its insurer). I was unimpressed by the way in which during closing addresses FAI sought to attribute to NCI some impropriety in handling the claim.
Mr Basheer, a director of the plaintiff (and his co-director Mr Toohey) recognised the need for credit insurance to protect the business against default by the plaintiff’s principal distributor Logicom which was to handle about 90 per cent of the plaintiff’s business on invoice. The plaintiff’s bank required this insurance and Mr Toohey and Mr Basheer were referred to NCI by the plaintiff’s usual broker Sedgwicks, who recommended NCI as a specialist broker in the trade credit area. Mr Basheer met Mr Carlier, the State Manager of NCI who on 10 September 1998 filled out a proposal for insurance at Mr Basheer’s direction. I find that NCI was engaged by the plaintiff to provide specialist advice. Mr Basheer produced the distributorship agreement to Mr Carlier on that day and the two then went through the agreement together. Mr Basheer asked for Mr Carlier to explain how trade credit insurance might operate; Carlier explained that if Logicom went into liquidation claims would be paid within 30 days of the debt being recognised. Mr Carlier was fully apprised of the nature of Messagemate’s operation and the reason why trade credit insurance was so important to it.
Mr Carlier obtained three quotes (see Exhibit P5) and Mr Basheer and Mr Toohey chose FAI as being the cheapest in terms of premium. This took place at Messagemate’s premises in the presence of Mr Carlier who on that occasion reiterated the way in which a claim under the policy could be made “if the distributor fell over”. Mr Basheer put this date as October 1998 but I consider that 16 November 1998 in accordance with Mr Carlier’s evidence seems more likely. There were clear representations made by Mr Carlier upon which the Directors of Messagemate acted. It was at about this time that Mr Carlier organised premium insurance finance for the plaintiff through a company called HPF; Mr Basheer wrote a cheque for $3834.83 as the initial instalment on the premium to be followed by seven other payments each of $3716.43. The next step is that Mr George (described as the NCI credit manager) handed a specimen policy to Mr Basheer and the two men then went through the policy terms in detail.
It was early December that Mr George provided to Mr Basheer a copy of the policy and the credit insurance procedures manual.
By letter dated 17 November 1998 from the plaintiff to FAI, Messagemate confirmed acceptance of FAI’s terms and confirmed having received a specimen policy and requested cover to commence from 1 November 1998. There is no dispute that the goods in question were invoiced and dealt with in accordance with the distribution agreement and that payment remained outstanding as at 10 December 1998 when the receiver and manager was appointed to Logicom. On 16 December 1998 Messagemate put FAI on notice that it was relying on its rights under the distribution agreement as regards retention of title and undertook to keep FAI informed of any developments regarding the recovery of stock.
On 4 January 1999 Messagemate notified the receiver of Logicom that Messagemate was exerting a claim to unpaid stock and notified the receiver of numbers of stock which had been recovered from the Norwood store. By letter dated 21 January 1999 the receiver accepted Messagemate’s assertion of title. On 25 February 1999 Messagemate re-sold goods to the Omni group.
Some criticism was made of the fact that the plaintiff allowed this matter to proceed to trial upon its summons issued on 21 May 1999 without seeking summary disposal of the claim. In my view an application under Rule 25 would not have succeeded.
12 The broker’s duty of care
NCI was working as an insurance broker in the specialist market of credit insurance. In any contract between insurance broker and client there is implied by law a term that the broker will exercise reasonable skill and care; in this case the skill and care required must be assessed in the specialist context in which the broker was operating. (Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd [1975] 1 Lloyds Rep 52). The precise nature of that duty will depend upon the client’s instructions (see Jackson & Powell on Professional Negligence 4^th ed at pars 7.07 and 7.23). It is unnecessary for the purposes of the present case to consider separately the duty of care owed by a broker to a client independently of a contract.
There are cases where the client’s instructions to a broker are to obtain a particular form of insurance (as opposed to using reasonable skill and care in placing the insurance). In that type of case the issue will be whether the broker carried out his instructions (irrespective of any question of negligence); if the insurer is not liable under the policy upon a claim being made, then this may demonstrate that the broker failed to carry out his specific instructions (see Seavision Investment SA v Evennett - the Tiburon [1990] 2 Lloyds Rep 418 and Flying Colours Film v Assicurazioni Generali Sp A [1993] 2 Lloyds Rep 184). In my opinion the present case does not fall into this category. The evidence shows that Messagemate itself selected its insurer after relying heavily upon NCI to provide advice. Nevertheless I agree with the submission made on behalf of NCI that the broker’s responsibility did not require it to obtain a policy which was “bullet proof”. NCI gave no warranty to Messagemate nor did it guarantee that FAI would act reasonably.
In the present case the broker was required to have a familiarity not only with the general principles of insurance law and agency but also an appreciation of the special legal problems and pitfalls associated with credit insurance. Bearing in mind its leading status as a broker in this specialist market NCI’s duty of care was correspondingly high. As relevant to this case it is difficult to distinguish between what might be expected of a solicitor and this broker. Indeed, in some circumstances and in respect of some aspects of professional advice I could envisage that a specialist broker might be expected to be better placed than a solicitor to recognise a problem. So specialised is this business that the broker might have been expected to consult a lawyer as to the significance of differences between the various policies on offer in the market. However, insofar as the present case raises a question of construction of a document I would not expect more from the specialist broker than from a lawyer.
In the present case the broker was well versed in the apparent differences between the various standard policies available in the market and dealt with Messagemate on this basis. The overall effect of these circumstances is that the responsibility attaching to the broker was correspondingly higher than might otherwise have been the case. The broker was on notice of the ROT clause.
In Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd & Anor (1991) 6 ANZ Ins Cas 61-066 Kirby P sets out the following principles:
“1.The duty in law of a broker who is engaged to secure insurance on behalf of a client is “having undertaken to obtain insurance [to] exercise proper care and skill in carrying out the assured’s instructions”….The duty is owed by contract but also in tort….
2.The foregoing duty does not extend to expounding the law to the insured. But it does extend to pointing out legal pitfalls which might arise in the course of effecting a valid insurance cover and in securing cover for the risk necessary to the insured’s disclosed or ascertained needs….
3.To decide what a reasonably careful insurance broker would have done in particular circumstances, it is normally necessary that expert evidence be given upon the basis of which the Court may reach its conclusion….
4.However, where the default of the broker relied upon by the insured is so rudimentary and obvious, expert evidence of broker practice will not be necessary. The rudimentary failure of a broker to take a step which was obviously necessary and prudent will entitle the Court to reach its own conclusion of negligence….
5.It is especially important that an insurance broker should go through with the insured the list of exceptions in the policy secured. This should be done in order to afford the insured, who may fall within an exception the opportunity to request deletion of the exception upon payment of a higher premium or cover with another insurer….
6.The insured must prove that it is a breach by the broker of its duty of care to the insured which caused the loss complained of. Usually this
involves proof that the insurance policy obtained by the broker does not cover the risks that have occurred and that proper care and skill would have ensured that a policy was obtained which did cover those risks….”
Although the present case gives rise to a concurrent duty of care on the part of the broker in tort and in contract, it is not necessary to discuss them separately. In my opinion the broker was not in breach of any duty of care. Upon my assessment, the policy of insurance in essence was not (as now relevant) significantly different from policies otherwise available in the market. The definitions in the FAI policy made it clear that the ambit of the policy was limited to a situation in which a seller of goods was making credit available to the purchaser; it was necessary for the goods to have come physically under the power of the purchaser in circumstances where the purchaser had possessory rights. The ambit of insurance cover did not extend to insuring the risk that the seller may not have a good title (as in Rowland v Divall - see part 8 of these reasons). There was nothing obscure in the language such as to suggest that the policy was unsatisfactory or likely to lead to problems.
In my opinion the construction which FAI now advances should be regarded as absurd. If the construction for which FAI now contends had been drawn to the attention of a senior commercial lawyer that construction would have been rejected having regard to the commercial objectives of the policy. If alerted to the possibility of a point of argument (as now advanced by FAI) as to whether for the purposes of the policy a “sale of goods” would occur in face of the ROT clause, I consider that counsel would conclude that the point was without substance; again the contention of FAI (that there was no relevant sale) would be treated as absurd.
Upon the facts of this case I consider that my decision as to the construction of the policy coupled with the identification of NCI’s specific instructions is sufficient to dispose of the claim against NCI (and Mr Carlier) in terms of a breach of duty. The defendants argued that if the policy responded to the plaintiff’s claim then the defendants were necessarily absolved from responsibility for a breach of duty (whether tortious or contractual). I disagree with this contention. In my opinion it was open to the plaintiff to argue that the broker should have foreseen and warned against the problems associated with a poorly drafted policy or a policy whose meaning was unclear. However, my assessment is that this policy (as now relevant) was not “poorly drafted” and its terms did not require any particular warning as to possible room for argument. Despite the vigorous argument mounted by FAI I consider that the meaning of the policy is clear. However, there appears to be an indiscriminate use of quotation marks and a mixture of capital letters and lower case type in the printing of the policy document. I consider that the layout in this respect could be improved but otherwise the expression of the concepts in the crucial definitions is not such as to attract adverse comment or require a warning.
In the result I am of the opinion that the broker and its manager were not in breach of duty to the plaintiff in (1) recommending the FAI policy and (2) in not giving a warning as to any weakness in the policy and (3) in not identifying relevant differences between the FAI and other policies in the market.
Logically one would expect that an argument might have been mounted that the broker should have anticipated and identified also the argument which FAI presented as to the absence of a “sale”. Such argument I also label as absurd but when coupled with FAI’s argument as to the meaning of “deliver” I conclude (in the light of Mr Zambetti’s memo of 6 January 1999) that FAI was taking a stand without regard to the consequences as regards the possible effect upon its reputation. It was not dealing in good faith. There was nothing in the history of the broker’s dealings with FAI to suggest that FAI was prepared to deal with its customers otherwise than in good faith.
I do not consider that the broker’s duty of care required it to anticipate and warn against the absurd construction which FAI now seeks to give the policy when applied to terms of trading as adopted by the plaintiff. I note that the meaning of “delivery” was not the only point taken by FAI. The other points were equally as bad. I do not consider that in advance of the claim being made NCI or Mr Carlier could have been expected to recognise and bring to account “the view taken” by Mr Zambetti.
13 Misrepresentation and misleading and deceptive conduct
(a) The Plaintiff’s claim against FAI
There may be room for a difference of opinion as to whether I should deal with the plaintiff’s alternative claim against FAI in view of my decision that FAI is bound to indemnify.
In my opinion it is clear that if (contrary to my judgment) FAI policy be given the construction for which FAI contends then FAI’s conduct would nevertheless be in breach of s 52, s 53(a) and (g) and s 51AC of the Trade Practices Act as pleaded. FAI would also be in breach of s 56 of the Fair Trading Act. Having calculated and accepted a premium based on the whole of Messagemate’s turnover (in the knowledge of the ROT clause) FAI was representing to NCI and its customer that the policy would respond so as to indemnify the plaintiff in respect of credit sales made under its distribution agreement. It was unconscionable for FAI to take the premium if FAI was not to be effectively placed at risk by virtue of its unusual interpretation of the policy. The premium at the rate of 0.5 per cent was calculated on an estimated turnover of $5 million so as to produce a minimum premium fixed at $25,000 for the policy year subject to subsequent adjustment when the actual turnover was declared. As these various claims were argued in a global fashion in the alternative to the claim on the policy I deal with these matters now so that the parties may pursue their rights as they may be advised. Before the plaintiff could enter judgment on any of these alternative claims it would be necessary for the plaintiff to elect upon which cause of action it would seek judgment. The plaintiff’s entitlement in any event is to an amount equal to that which I award upon the claim under the policy but subject to an adjustment to bring to account the additional premium otherwise payable; Exhibit 5 sets out in tabular form the premiums otherwise on offer in the market.
(b) The plaintiff’s claim against NCI and Carlier
Whether or not the FAI policy be given the construction for which FAI contends I would not be prepared to allow Messagemate’s claim against NCI or Carlier upon the basis of breach of professional duty (see Part 12 of these reasons) or by reason of conduct allegedly giving rise to statutory claims. The plaintiff alleges that a series of representations as set out in pars 10-25 and 27 of the statement of claim constituted misleading and deceptive conduct on the part of NCI in which Mr Carlier was knowingly concerned. Apart from a series of representations which are not contentious (eg as to NCI’s skill and experience) the crux of the complaints are allegations that:
“27.2 any policy of credit insurance procured by NCI for Messagemate would be suitable for, conform with and accomplish the purpose of Messagemate as pleaded in paragraph 3 hereof
27.3 in the event of the insolvency of a debtor such as Logicom the policy of credit insurance would entitle Messagemate to an indemnity from the insurer equal to the insured proportion of the debt owing by the debtor and the insurer would accordingly so indemnify.”
These are the general allegations but the case was argued with particular reference to a representation (which reflected the terms of cl 8 of the FAI policy) and alleged in cl 25 of the statement of claim:
“Claims would be settled promptly (after 30 days once confirmation of debt was received) providing all policy conditions had been met and full documentation was submitted with a completed claim form.”
NCI provided to the plaintiff in writing a summary (or extracts) from the FAI policy in the course of providing advice. NCI gave the plaintiff the benefit of its experience with FAI when it advised as to the terms of the policy but NCI should not be treated as guaranteeing how FAI might respond to a claim in the event of Logicom’s default.
Upon this the plaintiff argues that:
“The plaintiff does not have to prove a misrepresentation. What needs to be proved is that NCI engaged in conduct that is misleading or deceptive or likely to mislead or deceive [Wheeler Grace and Pierucci Pty Ltd v Wright (1989) ATPR 40-940 and AJ Thompson Pty Ltd v KLK Manufacturing (1986) ATPR 40-718]. That is what is pleaded in paragraph 38 of the Further Amended Statement of Claim [Copy documents p26], and that is what s52 requires.
It is the totality of NCI’s conduct that is relevant to establishing whether or not there has been a breach of section 52 [Pappas v Soulac Pty Ltd (1983) ATPR 40-411].
If, on the totality of the evidence, NCI has created a false impression that the cover that Messagemate ultimately contracted would respond in a particular way, a breach of section 52 will have been established. If it is established that that conduct caused the plaintiff loss (because the plaintiff relied on it) the plaintiff is entitled to recover that loss.
The conduct of the NCI defendants did create that impression. NCI proffered the policy as if there was no difference between the FAI policy and any other policy. Had Messagemate been warned of the potential argument, it would have responded by either withdrawing the ROT clause or taking a different policy.”
I do not consider that the conduct of NCI or Mr Carlier should be regarded in this way. NCI’s instructions were to obtain quotes and to make recommendations. NCI was not instructed to effect insurance to a particular specification. It was only required to make recommendations. There was nothing in NCI’s conduct whereby it guaranteed that a policy had a particular effect although its duty of care (which I consider to have been discharged) was high. I find that NCI considered the FAI policy to be a suitable product to protect Messagemate’s interests and conveyed that opinion to the plaintiff as its duty required. NCI did not go the extra step and give the assurance (or appearance of an assurance) which the plaintiff asserts. Mr Basheer of Messagemate was an experienced business man (although without any knowledge of trade credit insurance before he spoke to Mr Carlier. I construe the dealings between the plaintiff and NCI in this light. Upon the facts it is my opinion that the evidence falls short in seeking to establish misleading or deceptive conduct on the part of NCI and Carlier. NCI was providing advice as an experienced and skilled professional. The defendants represented that they held a particular opinion based upon the exercise of knowledge and skill - but nothing more. The representations made by the defendants were justified particularly in view of their past experience. Insofar as Mr Carlier’s advice be categorised as a representation as to the future (or prediction as to how a claim would be handled) I consider that there were reasonable grounds for a belief by NCI and its officers that the prediction (or represented future course) would be fulfilled (see Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 55 ALR 25). There might be circumstances in which some qualification to advice might be needed to allow for the possibility of non fulfilment of the representor’s expectations (see Famel v Burswood Management (1989) 15 ACLR 572 citing Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40-940 at 50,251:
“In respect of unfulfilled promises or predictions, there may be conduct which may be shown to be in contravention of s 52 of the Act without it being established that there was an implied representation by the maker of the prediction or promise that there were reasonable grounds for the belief that the prediction or promise would be fulfilled. Section 52 is directed at conduct of a corporation in trade or commerce as part of an Act concerned with the elimination of unfair trading practices which affect persons with whom a corporation may deal, or which may have an impact in trade or commerce that is regarded as adverse and undesirable. A positive unqualified prediction by a corporation may be misleading conduct in trade or commerce if relevant circumstances show the need for some qualification to be attached to that statement or the possibility of its non-fulfilment to be disclosed as a requirement of fair trading…The misleading or deceptive conduct may be found in the failure to qualify the statement or disclose the risk of non-fulfilment.”

I consider that there was an adequate foundation for the broker’s advice in the present case without the need for any qualification to its statements and answers given by Messrs Carlier and George to Messagemate’s questions.
(c) The defendant’s third party claim
The defendants’ third party claim against FAI for indemnity does not arise in view of the fact that I consider that the defendants have no liability to the plaintiff.
14 Loss of use of money
The plaintiff made a claim for loss of use of monies (by reason of late payment) based upon the principle in Hungerfords v Walker (1990) 171 CLR 125. The plaintiffs put this claim forward on the basis that as appears from a letter dated 21 August 1998 from the Commonwealth Bank (Exhibit X30) the plaintiffs initially arranged short term finance of $250,000 which was to be progressively reduced to $225,000 on 1 November 1998 and thereafter further reduced by further nominated monthly repayments of either $25,000 or $30,000 so as to discharge the indebtedness on the advance by 1 July 1999.
The letter provides that:
“These arrangements may need to be reviewed when you have finalised your trade finance requirements should you require an ongoing Facility limit.”
The plaintiff provided an expert’s report (which was not challenged) which showed that by reason of the non-payment of an assumed entitlement to a debt of $466,386.59 said to be due on 16 December 1998 Messagemate suffered a loss of use of money; by being deprived of the money it incurred the cost of maintaining the bank facility which including loan fees and interest totalled $53,409.17 to 1 December 1999. The evidence shows that on 16 December 1999 another company M2 Technology bought the assets of Messagemate (other than the insurance claim) in consideration for the assumption of the debts of Messagemate.
In terms of par 66.5 of the statement of claim the plaintiff formally alleged:
“… as a result of the matters complained of herein Messagemate has sustained damage in loss of use of moneys which could have been applied in reduction of borrowings and, thereby, a reduction in its interest liabilities had it not been deprived of the said moneys by the actions complained of on he part of the defendants.”
The plaintiff’s submission in closing address was that:
“…It is clear from what appears under the heading “Term” on page 2 of that exhibit [X30] that what was envisaged in August 1998 was a short term finance facility - to enable the Messagemate business to commence trading. Indeed, it was proposed to gradually reduce the credit limit to ‘nil’ by 1 July 1999. It is clear from the evidence that the non-payment of the FAI policy resulted in a “cash-flow crisis” for the plaintiff.
It is, accordingly entirely reasonable to infer that, at least the interest charges and fees incurred from1 July 1999 until 16 December 1999 are directly attributable to the non-payment of the Logicom claim.”
In my view upon the evidence of Mr Basheer a substantial part of the interest charges would have been incurred in any event irrespective of the failure of FAI to accept the plaintiff’s claim under the policy. Moreover the initial arrangement as abovementioned was superseded.
The expert was instructed to prepare his report upon the basis that:
“…had the insurance policy responded in Messagemate’s circumstances, the moneys thereby received would have been applied in reduction of the company’s borrowings (particularly from the Commonwealth Bank).”
The evidence does not support this assumption. Mr Basheer was cross-examined upon the bank letter:
“QDoes that reflect what was ultimately agreed with the bank as to reducing the overdraft limit.
AYes, on the 250 yes, that’s correct.
QAnd Messagemate agreed to that.
AYes, that’s correct.
QAnd did that reflect Messagemate’s assessment of its need for funds over the course of the year.
AYes, that was set for us to produce the equipment, and as it was on-sold to Logicom the reduction was reduced according to the list; that’s correct.
QAnd the reduction would happen over time effectively out of surplus cash.
AYes, from APT Logicom’s order, yes, that’s correct.
QSo it wouldn’t be the case that you would sell you first lot of, or second lot of, orders to Logicom and that would wipe out the overdraft.
ANo.
QAll things being equal, you would use funds recovered from Logicom to produce more product, the overdraft would go up again.
AYes, to produce more product and to reduce it accordingly at the $25,000 and the $30,000 limits. As the deliveries occurred, we had funds to finish the other product and reduce, that’s correct, yes.
QSo over that period of time Messagemate would slowly be reducing its overdraft and slowly be reducing the amount of interest it would be paying.
A.That’s correct.”
And at 229-230:
“QFollowing the original finance arrangement with the bank, a second arrangement was come to with the bank, wasn’t it.
AYes, that’s correct.
QAnd that arrangement was a further $250,000 finance.
AYes, that’s correct.
QAnd that was to be in the form of an extension of the overdraft limit.
AYes, that’s correct.
QSo that the overdraft limit would go from $250,000 to $500,000.
AYes, that’s correct.
QAnd it’s fair to say, isn’t it, that whilst we don’t know the numbers, and we can’t know the numbers, the $500,000 overdraft limit would have to be reduced over time as surplus cash made it possible.
AYes, that’s correct.”
It seems to me that Messagemate expected to continue to run an overdraft account. The evidence does not establish what proportion of the interest charges (if any) would have been avoided if FAI had accepted the claim under the policy and if Messagemate had continued with its business. The evidence does not satisfy me as to how the second proposal and its terms varied from that in Exhibit X30. The facts disclosed in the cross-examination create uncertainty as to the eventual arrangement with the Commonwealth Bank. It does not appear how or whether (if there had been timely payment by FAI) the receipt of the insurance monies would have been applied as against the debt of $500,000. The cross-examination has effectively obscured the position to the point where the assumption of the expert departs too much from the true position for me to be able to base an award on the expert’s opinion.
In Hungerfords v Walker 171 CLR 125 at 135 and 150 given the fact that the business was profitable, King CJ concluded that to the extent that Walker Stores would have devoted the additional funds to the business “their loss could not be less than the rate of interest which they were paying on the highest interest loans”. Although he made some subsequent adjustments to the figures to bring various contingencies to account the primary thrust of the calculation made by King CJ in the Full Supreme Court depended upon the business being profitable. That fact cannot be assumed in the case of Messagemate which was embarking upon a new venture with an untried distribution organisation. It is far from clear to me what the bank arrangements (as eventually agreed) allowed or required. The monies owing to the bank ($500,000) were effectively more than offset by the salvage value of goods $145,677) plus the insurance claim (say $466,386) - in all $612,063. In this situation (and bearing in mind the impact of Logicom’s demise) I consider it to be speculative as to how the plaintiff might have been expected to have applied the insurance monies if the claim had been met in a timely fashion.
Upon the evidence I do not consider that a particular loss has been identified which is capable of special qualification, particularly having regard to the presence in the background of M2 Technology. No doubt the insurance monies would have been “put into the business” by the plaintiff but Messagemate was then required to set up afresh following its failed association with Logicom. In the absence of proof of some particular commitment to the bank there is no basis for making an assumption as to how the insurance monies might have been applied.
I consider that in the circumstances Messagemate should be allowed interest on the debt calculated at 6 ½ per cent per annum from 1 February 1999 until judgment.
15 Insurance Contracts Act - s 54
FAI contends that the effect of the contract of insurance is that FAI may refuse to pay the claim by virtue of the subsequent act of the insured. However, the defendants argue that the extent of the definition of the ambit of the risk cannot be cut down by virtue of “the act of the insured” in exercising its right to recover the goods for which payment had not been made.
Section 54 of the Insurance Contracts Act 1984 provides as follows:
“(1)Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act.
(2)Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.
(3)Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act.
(4)Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act.
(5)Where:
(a)    the act was necessary to protect the safety of a person or to preserve property; or
(b)    it was not reasonably possible for the insured or other person not to do the act;
the insurer may not refuse to pay the claim by reason only of the act.
(6)A reference in this section to an act includes a reference to:
(a)    an omission; and
(b)    an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter.”
I was referred (inter alia) to FAI v Australian Hospital Care (2001) 180 ALR 374 where the High Court has reviewed the case law on this section.
In my view the exercise of rights by virtue of the ROT clause to recover monies for the benefit and in reduction of the insured’s debtors ledger is not an act to which (in the circumstances of this case) s 54 has any application. The act of the insured pursuant to its agreement dated 13 August 1998 was in no way prejudicial to the insurer’s interests and did not cause or contribute to any relevant loss under a later policy of insurance effected on the basis that trading involved reservation of title. Moreover, the act of the insured was necessary to preserve property and was to the advantage of the insurer.
In my opinion s 54 is irrelevant to this case.
16 Conclusion
I reject the construction of the policy advanced by FAI.
The plaintiff by way of indemnity upon the Trade Credit Policy is entitled to recover from FAI the amount claimed namely $466,386.59 together with interest on this sum calculated at the rate of 6 ½ per cent per annum from 1 February 1999 until judgment.
The plaintiff’s claim against the defendants NCI and Mr Carlier will be dismissed. The broker and its Manager were not in breach of any duty of care and were not guilty of any misleading or deceptive conduct nor did they make any actionable misrepresentation. In view of the dismissal of these claims the third party claim for indemnity does not arise.
I will hear the parties generally as to costs and as to the form of the order which should be entered as at this day.

Date	Invoice	Amount
13 November 1998	0072	$349,480
20 November 1998	0087	$1,225
20 November 1998	0088	$275
10 December 1998	0147	$349,270
Total	$700,250

[2002] SASC 327

1 October 2002